Tai Pan Management Services Ltd.

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Saturday, 5 September 2015

Post by James at Taipan-International.com.Yet another tax haven blacklist – this time from the EU, or… hang on a moment… the European Commission said “The list should not be viewed as a central blacklist since the list of 30 names is merely a consolidation of national lists” despite referring to it themselves as the “pan-EU list”.

So what is this EU blacklist?

Each of the 28 EU member states are free to prepare their own blacklists of countries that it views as ‘non cooperative’ on tax matters (in plain English they don’t do enough to stop EU nationals from using them to pay less tax). Where a jurisdiction appears 10 time on a national blacklist it then appears in the ‘consolidated list’ which is put out as ‘official’ thus providing easy targets for the media, and various commentators to vent their spleen against those who don’t pay their ‘fair share of taxes’, whilst no doubt enjoying a sumptuous lunch on expenses. Interestingly at least 5 of the EU black-listers have themselves failed to meet EU tax obligations – it is hard to imagine that the Netherlands, Luxembourg and Ireland would not have appeared on an independently produced blacklist. The UK and Cyprus would also be there.

The most prolific ‘list makers’ are the former Soviet Bloc countries - notably the Baltic’s which do a roaring trade in offshore (read tax free) banking [including Latvia: corporate tax rate 15%, Lithuania 15%, Estonia 20%, and Bulgaria 10%]. Perhaps these territories are hoping that business currently in the BVI might suddenly transfer to them, as their tax rates are considerably lower than the European average.

Even the OECD, that august group of 35 high tax countries that do their best to put out of business any country that dares to levy a lower rate of tax than their members on the spurious grounds of ‘unfair tax competition’ believe this EU list ‘is a mistake’.

So what does this list mean and what effect can it have?

Actually, the list means very little and will have very little effect.

Firstly, some of the jurisdictions listed clearly should not be there

(a) Hong Kong, which has a tax rate of 16.5% - in excess of two of the three Baltic’s, Bulgaria, Cyprus and Ireland.

(b) Guernsey that even the EU says should not be on the list due to a misunderstanding by the Polish government of the relationship between Guernsey and its dependencies (Sark and Alderney). We must comment here that in their efforts to grovel to the OECD (and HMG) that the Channel Islands (Jersey, Guernsey etc) will soon be back to cut flowers and potatoes having effectively destroyed their ‘finance centre’ business.

(c) Nauru, which effectively pulled out of the offshore business a decade ago and does not have any banks operating in the country. (Likewise Niue with one bank)

Secondly, it (quite deliberately in our view) attempts to blacken the reputations of the named jurisdictions; it puts the listed jurisdictions on to bank compliance ‘risk’ software. On this point we wonder how the UK might react to being blacklisted for shielding corrupt oligarchs’ ill-gotten gains., or Ireland, Luxembourg and the Netherlands for creating accounting/taxation fictions that have the effect of shielding US multinationals from actually paying any meaningful tax on their European earnings.

Our opinion on the EU blacklist

It seems to us that the governments (of the OECD & EU)want to have their cake and eat it. Free competition when it suits them ... but not when somebody else offer something better, but wasn’t it always so.

A noticeable omission however from the list (below) of jurisdictions is the United Arab Emirates (Dubai and RAK primarily). RAK for example offers entirely tax-free companies (as indeed it might as there are no corporate or personal taxes levied in the Emirates). RAK does not cooperate in exchanging data with the EU or anybody else and, we understand, has no plans to do so. Why therefore does it not appear on the list? Could it be because of oil and the related fact that if the Emirates are sufficiently upset by perceived bullying, they might just sell their oil to non-EU countries? As we all know the Middle East does not take kindly to extra-territorial ‘legislation’ or similar where it affects their interests.

For those readers interested in RAK, further brief information is available at Dragon Registrars , and more detailed information at TMS FZE.

This EU blacklist is just the latest in a long line of attempts by overspending high tax countries to bully and coerce smaller jurisdictions who’s livelihoods depend in part on corporate services and the fact that they see no reason to levy venal and unreasonable taxes on businesses. It is all connected with the ‘initiative’ for ‘greater tax transparency’ (i.e. abolishing privacy) started by the OECD and its offshoot FATF founded in 1999 by the G7 to force tax havens out of business.

What binds FATF, the OECD and the EU together in this case are ‘TIEAs’ (Tax Information Exchange Agreements) which the OECD has decreed (extra territorially) must be signed by each tax haven with at least 12 other (generally high tax) jurisdictions or countries. These agreements generally prohibit ‘fishing expeditions’ (random enquiries) and, unsurprisingly have yielded little in the five to seven years most have been in force. The next phase is or will be automatic exchange of (tax) information. The EU has had practice of this with the EU Savings Directive, adopted in 2003 and in force since 2005 with new regulations coming into force in 2016-17.

To conclude...

The world is becoming smaller and privacy is being eroded. Whereas in the 1950s it was enough to set up a company in Tangier and operate entirely tax free, now careful planning is required to keep the tax man away from your door.

This often means multiple structures involving low tax as well as zero tax jurisdictions and sometimes ‘hiding in plain sight’... for example using tax transparent entities (LLPs etc) with the ownership (and thus dividends) being passed through to tax free companies which themselves do not trade.

For further information please contact James via the Taipan International contact page.

Wednesday, 5 August 2015

The background to TBES

For several years, VAT
registered suppliers in all EU countries have been obliged to charge their domestic
rate of VAT to their non VAT-registered customers living elsewhere in the European Union. This also
applied to TBES (telecommunications, broadcasting and electronically supplied
services) which were bound by the same rules.This lead to certain multinationals choosing countries with the lowest
VAT rate e.g. Luxemburg with its then 15% rate compared to, say, Hungary with its
27% rate.

The problem

From 1st of
January 2015 it became obligatory for businesses to charge VAT at the
customers domestic rate. In theory requiring even the smallest business to
have to account to 28 different VAT offices at least quarterly. Quite simply,
this is an administrative nightmare. Added to which countries such as UK with
high VAT registration thresholds (currently £82,000) are obliged to account for
VAT on ALL sales to other EU countries even though they are not obliged to
register for sales to domestic customers… The EU’s Commissions ‘reasoning’ for
not allowing the same threshold exemptions was that 'the UK had a high
threshold for registration' … a somewhat specious and circular argument.In order to ‘simplify’ the collection of VAT
EU wide: it is possible to register for 'MOSS' a supposed ‘One Stop Shop’
whereby individual businesses calculate the VAT due across all 28 member
states and pay it to their local VAT office who presumably settle up with the
other 27. So much for the EU cutting red tape! For obvious reasons, a number of
small businesses have ceased selling to consumers outside their own territory.

How to avoid being caught up in this
bureaucracy

With only a small amount
of lateral thinking, the solution is obvious.- Sell electronic supplies from outside the EU. The EU, like the USA, enjoys imposing extra-territorial legislation and then tries to claim
that non EU companies selling to European consumers ‘must’ register for VAT.
This is completely unenforceable and only companies, which have some kind of
presence in Europe, have been persuaded to ‘voluntarily’ register for European
VAT. The first example of this back in the ‘90s was CompuServe a US company
offering email and dialup internet services.The vast majority of non-EU sellers of electronic services (largely US
based) do not register for VAT nor have any interest in doing so, any
more then they would register for Singapore’s GST (VAT equivalent) for electronic sales
they make there.

The practical solution

There are a number of
countries located in ‘respectable jurisdictions’ where VAT either does not
exist at all or is a localised form with no connection to European VAT. This
blog is primarily about avoiding the onerous obligations of the European VAT
scheme rather than reducing tax bills (although that is also possible).
Assuming that the reader is already sellingan electronic service his first question is (or should be) ‘If I
transfer my business abroad what will my local tax office do?’. For this reason
we would suggest structuring this properly. Let us take for example an SEO
service that is fully automated – analysing websites and producing SEO reports
in return for a monthly subscription. This is just the kind of business that is
caught under the new regulations.

An owner of such software
could licence it to a third party - at commercial rates and paying tax on the
licence income so received.The
licensee would have a sales agreement allowing sales to all territories other
than the home territory of the licensor. The licensee company would be formed
in a low tax country outside the EU (e.g.Hong Kong, Singaporeor possibly evenRAK in the UAE). The licensee would pay either a licence fee to the licensor OR
hold the non-local rights outright for, say a one off fee or even an annual
fee.The choices are almost limitless.

Provided the transfer of
the IP (intellectual property) is a fair value there would be few grounds on
which to challenge the transfer as it could be commercially justified.Iftax savingwere also a goal, then the Licensee
company might be well advised to operate at arm's length (with the licensor not
'connected' to the licensee in any way).Management & Control of the Licensee Company would also need to be considered.

At its most basic, the EU
based Licensor would exchange huge amounts of paperwork and variable pricing,
for a simple monthly, quarterly etc receipt of a licence fee.Using the example of a service being charged
at £10 per, month + VAT (which from the EU would cost the European consumer
variously between £11.70 and £12.70), the Licensee would sell at £10 making the
service much more attractive.

We offer a wide range of jurisdictions in classic tax haven IBCs (International Business Companies) in jurisdictions such as Belize, BVI, Dominica, Seychelles, St Vincent, St Lucia etc. These jurisdictions are often best used for asset holding and discreet trading.

We also offer a number of low tax jurisdictions e.g. Hong Kong, RAK (UAE), Singapore and for EU trading Cyprus and Ireland. All of these are respectable jurisdictions but with low tax rates (maximum 17%).

Advice on banking matters is provided, ensuring the most appropriate choice for your clients given their circumstances. We, The TMS Group, are authorised agents for a number of offshore and onshore banks.

For further information, please look at our Services to Professional Advisors - in summary we are happy to work as your ‘back office’ with all correspondence being via yourselves. Alternatively, we can take on your client directly but copy you in as required.